Quarterly report pursuant to Section 13 or 15(d)

Note 5 - Investments in Unconsolidated Subsidiaries

v3.8.0.1
Note 5 - Investments in Unconsolidated Subsidiaries
9 Months Ended
Sep. 30, 2017
Notes to Financial Statements  
Equity Method Investments and Joint Ventures Disclosure [Text Block]
NOTE
 -
5
INVESTMENTS IN
UNCONSOLIDATED SUBSIDIARIES
 
Advance Ocular Science SA
 
Advanced Ocular Sciences SA ("Advanced Ocular") is a shell company attempting to develop an instrument
 to deliver injections into the eyes. As of
September 30, 2017,
Milestone Scientific owns
25%
of this entity. During
2015,
Milestone Scientific advanced
$78,798
for marketing and strategy planning to Advanced Ocular and it, or its organizers, were obligated to repay this advance if a public offering of Advanced Ocular equity was approved and funded in Poland during
2016.
However, a public offering has yet to be completed in Poland. As a result, Milestone Scientific wrote-off the
$78,798
advanced to Advanced Ocular as of
December 31, 2016.
Advance Ocular was
not
included in the condensed consolidated financial statements at
September 30, 2017
as
no
further investment has been made by Milestone Scientific.
 
Mi
lestone China Ltd.
 
          
In
June 2014,
Milestone Scientific invested
$1
million in Milestone China Ltd. (“
Milestone China”) by contributing
772
STA Instruments to Milestone China for a
40%
ownership interest. Milestone Scientific recorded this investment under the equity method of accounting. Milestone Scientific recorded a loss on its investment in Milestone China of 
$0
and
$554,766,
as of
September 30, 2017
and
2016,
respectively. Milestone Scientific's investment in Milestone China was
$0
as of
September 30, 2017
and
December 31, 2016,
respectively. Milestone Scientific incurred cumulative losses on its investment in Milestone China of
$2,078,484
and
$1,124,350
as of
September 30, 2017
and
December 31, 2016,
respectively, which have been suspended.
  
 
 In
June 2017,
Milestone Scientific entered into an agreement for the sale of the Milestone China Shares to an unaffiliated United States domiciled purchaser and a
10
-year option agreement to repurchase the Milestone China Shares. The purchase price for the Milestone China Shares was
$1,400,000
of which
$125,000
was paid in cash and
$1,275,000
was paid by delivery of a non-interest bearing secured promissory note. The note is payable in quarterly installments of
$125,000
until paid in full and is secured by the Milestone China Shares until full repayment.  In addition, pursuant to such note, the purchaser is precluded from selling all or substantially all of its assets prior to repayment of the note. The
10
-year option agreement provides Milestone Scientific an option to repurchase the
40%
equity interest at
$1,400,000
within the
first
two
years and at fair value (as defined in such agreement) for the remainder of the 
10
-year term. The transaction has been accounted for as a secured financing and Milestone Scientific will continue to account for its relationship with Milestone China under the equity method of accounting. A note receivable is presented on the Balance Sheet, along with a deferral from financing transaction (
$1,400,000
). The carrying value of the
forty
(
40%
) percent investment at the transaction date was zero.
 
 
Milestone Scientific had
$356,400
and
$712,800
of related party sales of handpieces to Milestone China and Milestone China
’s agent during the
three
and
nine
months ended
September 30, 2017
respectively. Milestone Scientific had
$1,977,862
and
$3,203,466
of related party sales of handpieces and instruments to Milestone China during the
three
and
nine
months ended
September 30, 2016,
respectively. As of
September 30, 2017
and
December 31, 2016,
Milestone Scientific recorded deferred revenues and deferred costs associated with sales to Milestone China of
$362,718
and
$712,800,
and
$1,001,800
and
$620,041,
respectively.  As of
September 30, 2017
and
December 31, 2016,
Milestone China’s agent owed
$$712,800
and
$2,714,600,
respectively, to Milestone Scientific which is included in related party accounts receivable on the condensed consolidated balance sheets. 
 
Milestone Scientific defers the total revenue and costs of goods sold when instruments and ha
ndpieces are shipped to Milestone China and Milestone China’s agent due to market conditions and Milestone China liquidity concerns. However, due to timing differences of when the inventory sold to Milestone China is actually recognized and when Milestone China sells the acquired inventory to
third
parties, an elimination of the intra-entity profit is required as of the balance sheet date. In accordance with ASC
323
Equity Method and Joint Ventures, Milestone Scientific has deferred
40%
of the gross profit associated with recognized revenue from Milestone China that has
not
been sold to
third
parties. At
September 30, 2017
and
December 31, 2016,
the deferred profit was
$659,931
and
$630,990,
respectively, which is included in the condensed consolidated balance sheets. For the
nine
months ended
September 30, 2017
and
2016,
the loss on equity investment was
$28,941
and
$554,766,
respectively, which is included in the condensed consolidated statements of operation. For the
three
months ended
September 30, 2017
and
2016,
 the loss on equity investment was
$0
and
$253,451,
respectively, which is included in the condensed consolidated statements of operation.
 
The following table includes summarized financial information (unaudited)
 of Milestone China:
 
 
September 30, 2017
 
December 31, 2016
 
Assets:
           
Current Assets
$
7,127,064
  $
9,362,198
 
Non-Current Assets
 
2,981,573
   
2,467,547
 
Total Assets:
 
10,108,637
   
11,829,745
 
             
Liabilities:
           
Current Liabilities
 
10,449,791
   
9,900,611
 
Stockholders' equity
 
(341,153)
   
1,929,134
 
Total liabilities and stockholders
’ equity
$
10,108,637
  $
11,829,745
 
 
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2017
   
2016
   
2017
   
2016
 
                                 
Net Sales
  $
1,382,588
    $
329,617
    $
2,548,140
    $
658,939
 
Cost of Goods Sold
   
556,430
     
262,576
     
1,445,634
     
546,440
 
Gross Profit
   
826,158
     
(67,041
)    
1,102,506
     
112,499
 
Other Expenses
   
(1,886,180
)    
(1.160,834
)    
(3,487,845
)    
(1.673,731
)
Net Losses
  $
(1,060,021
)   $
(1,093,793
)   $
(2,385,339
)   $
(1.561,232
)